UCITS Updated CSSF FAQ and CSSF Press Release 18/02

The CSSF’s updated UCITS FAQ and the CSSF press release 18/02 dated January 5^th 2018 relate to the deletion of section 1.4 of the UCITs FAQ which stated that “Non-UCITS ETFs are eligible investments for UCITS if they effectively comply with all criteria of Articles 2(2) and 41(1)(e) of the Law 2010, notwithstanding that the offering documents of non-UCITS ETFs grant possibilities which are not equivalent to requirements applicable to UCITS.
Given the specificities of each other ETF, an eligibility analysis must be carried out on a case-by-case basis and the UCITS must continuously ensure that the investment rules applied are equivalent to the investment rules applicable to UCITS, for example, via a system of compliance control or a written confirmation of the ETF or of the manager”.

The foregoing has been deleted from the CSSF UCITS FAQ as of January 5^th 2018.

Mere compliance controls or written confirmation of the ETF or of the manager are no longer acceptable.

For other UCIs to be eligible under Article 50(1)(e) of the UCITS Directive, such other UCIs:

1. shall be prohibited from investing in illiquid assets (such as commodities and real estate) in line with Article 1(2)(a) of the UCITS Directive;
2. shall be bound by rules on asset segregation, borrowing, lending and uncovered sales of transferable securities and money market instruments which are equivalent to the requirements of the UCITS Directive in line with Article 50(1)(e)(ii) of the UCITS Directive; mere compliance in practice shall not be considered sufficient;
3. the fund rules or instrument of incorporation shall include a restriction according to which no more than 10% of the assets of the UCI can be invested in aggregate in units of other UCITS or other UCIs in line with article 50(1)(iv) of the UCITs Directive; mere compliance in practice shall not be considered sufficient.

As a consequence, the UCITS subject to the Law of December 20^th 2010 on undertakings for collective investment in transferable securities, as amended and which have invested in other UCIs following the policy laid down in CSSF’s UCITS FAQ section 1.4 have to divest these UCIs as soon as possible taking into account the best interests of the investors. The CSSF will contact by March 31^st 2018 the investment fund managers which have invested in such UCIs to check the compliance with the new policy. New investments in such UCIs are no longer allowed.